Brazil pauses rate hikes, signals prolonged hold, eyeing US tariffs
The bank's monetary policy committee, known as Copom, kept its benchmark Selic rate at 15.00%, the highest level since July 2006. All 35 economists surveyed by Reuters from July 21-25 had forecast the decision.
With stable rates largely priced in, market attention turned to the central bank's statement for any hints on when rate cuts could begin in Latin America's largest economy.
But the central bank remained cautious and sought to steer clear of that debate in its policy statement, released the same day that the U.S. Federal Reserve also held rates steady despite political pressure to start cutting borrowing costs.
Copom paused its rate-hiking cycle "to examine its yet-to-be-seen cumulative impacts, and then evaluate whether the current interest rate level, assuming it is stable for a very prolonged period, will be enough to ensure the convergence of inflation to the target," policymakers said in their statement.
With Brazil bracing for a 50% U.S. tariff - a move that makes it among the trade partners hardest hit by President Donald Trump's policies, despite the exclusion of several key Brazilian exports - the central bank said the global outlook has become more adverse and uncertain.
"The committee has been closely monitoring the announcements on tariffs by the U.S. to Brazil, which reinforces its cautious stance in a scenario of heightened uncertainty," it said.
Rodolfo Margato, an economist at XP, said the central bank's statement may be read as slightly hawkish by markets, as the central bank kept its inflation forecasts unchanged, while markets had expected a slight downward revision.
Still, Margato said there were no elements that would change the course of monetary policy in the short term, and he forecast a first rate cut only in January.
Policymakers projected on Wednesday that 12-month inflation will reach 3.4% in the relevant horizon for the bank's current monetary policy decisions, which is now the first quarter of 2027.
The figure matches the central bank's June estimate for that period, even after factoring in a tighter interest rate path based on the bank's latest weekly survey of economists.
For this year and the next, the central bank kept its inflation forecasts unchanged at 4.9% and 3.6%, respectively.
The central bank again warned in its statement that it would not hesitate to resume hikes if deemed necessary.
Inflation-adjusted borrowing costs in Brazil are deep in restrictive territory, surpassing even those in Russia and Turkey, helping to attract capital inflows and strengthen the country's currency by about 10% this year and easing some pressure on consumer prices.
Even so, Brazil has seen inflation running well above its official 3% target for several months, fueled by an overheated economy, government stimulus measures, and a tight labor market.
Market expectations for inflation also remain unanchored from the target in coming years, despite some recent improvement for this year and next, after recent indicators began to show the impact of steep interest rates on credit and cooling economic activity.
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